Set 4: Digital Assets/Regulation

Question 1

What are digital assets?

Answer 1

Cryptographically secured digital representations of value or rights, including cryptocurrencies, tokens, and smart contracts.

Question 2

What is a cryptoasset?

Answer 2

A digital asset using cryptography and distributed ledger technology (DLT) to enable secure ownership and transfer.

Question 3

What is a smart contract?

Answer 3

A self-executing digital agreement with terms written into code, operating on a blockchain.

Question 4

What is Distributed Ledger Technology (DLT)?

Answer 4

A decentralised digital system for recording and verifying transactions, such as blockchain.

Question 5

What distinguishes digital assets from traditional assets?

Answer 5

They are intangible, decentralised, often anonymous, and not always tied to legal tender.

Question 6

What is tokenisation?

Answer 6

The process of representing real or digital assets as blockchain-based tokens.

Question 7

What are utility tokens?

Answer 7

Tokens that provide access to a service or platform but do not grant ownership or financial rights.

Question 8

What are security/investment tokens?

Answer 8

Tokens that represent ownership, voting rights, or a share in profits—regulated as securities.

Question 9

What are stablecoins?

Answer 9

Cryptoassets pegged to stable assets (e.g., fiat currency) to reduce volatility.

Question 10

What is DeFi (Decentralised Finance)?

Answer 10

Blockchain-based financial systems offering services like lending or exchanges without central intermediaries.

Question 11

Which UK law regulates digital asset services?

Answer 11

The Financial Services and Markets Act 2000 (FSMA), especially Part 4A and Part 23.

Question 12

What does FSMA Part 4A require?

Answer 12

Authorisation for firms offering regulated crypto-related financial services.

Question 13

What does FSMA Part 23 govern?

Answer 13

Financial product promotion and marketing standards, including cryptoasset ads.

Question 14

What is the purpose of the Money Laundering Regulations 2017?

Answer 14

To enforce customer due diligence and prevent illicit finance in crypto platforms.

Question 15

What is required under MLR Regulation 27?

Answer 15

Crypto firms must conduct Know Your Customer (KYC) and verify identities.

Question 16

What does Regulation 33 of the MLR require?

Answer 16

Enhanced due diligence for high-risk clients, such as anonymous or cross-border transactions.

Question 17

What does GDPR Article 5 require in crypto contexts?

Answer 17

Lawful, transparent, and limited use of personal data, especially in wallets or exchanges.

Question 18

What is the EU MiCA Regulation?

Answer 18

The Markets in Crypto-Assets Regulation, a comprehensive EU framework for cryptoassets.

Question 19

What does MiCA require for token issuance?

Answer 19

Issuers must publish a white paper and register with authorities.

Question 20

How does MiCA regulate trading venues?

Answer 20

Through mandatory authorisation, transparency obligations, and market abuse prevention.

Question 21

What was the issue in Re Mt. Gox (2014)?

Answer 21

Whether users could recover lost Bitcoin after a major exchange hack.

Question 22

What did the court hold in Re Mt. Gox?

Answer 22

Bitcoin was recognised as property, though recovery was limited.

Question 23

Why is Re Mt. Gox important?

Answer 23

It helped establish cryptoassets as “property” under insolvency law.

Question 24

What was the issue in AA v Persons Unknown (2019)?

Answer 24

Whether Bitcoin used in a ransom could be subject to a freezing injunction.

Question 25

What did the court decide in AA v Persons Unknown?

Answer 25

Bitcoin qualifies as property and can be frozen by court order.

Question 26

What legal principle was established in AA v Persons Unknown?

Answer 26

Cryptoassets can be subject to proprietary injunctions in English law.

Question 27

What challenge did courts face in Mt. Gox?

Answer 27

Lack of a legal framework for intangible, decentralised property.

Question 28

What enforcement issue arose in AA v Persons Unknown?

Answer 28

Difficulty in identifying and prosecuting anonymous parties.

Question 29

What doctrine was reaffirmed through these cases?

Answer 29

The extension of property rights to digital/intangible assets.

Question 30

What do these cases signal for crypto enforcement?

Answer 30

Courts are willing to adapt existing legal principles to new digital contexts.

Question 31

What is the key financial crime risk in crypto?

Answer 31

Money laundering due to anonymity and ease of cross-border transactions.

Question 32

Why is volatility a concern in cryptoasset markets?

Answer 32

Extreme price swings complicate valuation, taxation, and investor protection.

Question 33

What is the issue with smart contract enforceability?

Answer 33

Code-based agreements may lack clarity or legal remedies for errors.

Question 34

What’s the danger of private key loss?

Answer 34

Users lose permanent access to digital assets with no recovery option.

Question 35

What is a regulatory arbitrage risk with digital assets?

Answer 35

Firms may move operations to jurisdictions with weak oversight.

Question 36

What challenge do decentralised platforms pose?

Answer 36

Lack of a central point of accountability complicates regulation and enforcement.

Question 37

What consumer protection issue exists in crypto?

Answer 37

Many platforms do not offer compensation for hacks or insolvency.

Question 38

Why is MiCA considered a regulatory milestone?

Answer 38

It introduces consistent, EU-wide standards for crypto market participants.

Question 39

What is the limitation of MiCA for NFTs and DeFi?

Answer 39

They are largely excluded or only lightly regulated under the current regime.

Question 40

What compliance burden does MiCA place on issuers?

Answer 40

Mandatory disclosures, licensing, and consumer risk warnings.

Question 41

What does Cranston say about crypto regulation?

Answer 41

Existing laws are inadequate for decentralised, borderless digital assets.

Question 42

What is Cranston’s concern with enforcement?

Answer 42

National laws struggle to regulate assets that exist outside jurisdictional boundaries.

Question 43

What does Amao criticise about crypto exchanges?

Answer 43

Their lack of transparency and weak protection mechanisms for consumers.

Question 44

What regulatory recommendation does Amao make?

Answer 44

Stronger consumer rights and oversight of exchange operations.

Question 45

What is a major academic concern with DeFi?

Answer 45

Absence of intermediaries removes a key point of accountability.

Question 46

What does global coordination aim to address?

Answer 46

Regulatory fragmentation and enforcement gaps in cross-border crypto markets.

Question 47

What trend is the Financial Stability Board (FSB) tracking?

Answer 47

The systemic impact of digital assets on traditional financial markets.

Question 48

What role does FATF play in crypto regulation?

Answer 48

It sets global standards for AML and CFT compliance in virtual asset services.

Question 49

What is the future regulatory challenge for smart contracts?

Answer 49

Defining legal liability when execution is automatic and decentralised.

Question 50

What is the academic consensus on digital asset law?

Answer 50

Legal frameworks must evolve rapidly to match the speed of technological innovation.